Every private equity firm has a diligence process. The basics are the same across the industry. Audited financials, quality of earnings, customer concentration, key person risk, legal review. If a sponsor cannot do that work competently, they should not be in the business.
What separates a thoughtful evaluation from a checkbox exercise is the second layer of questions.
We start with the operator
Numbers describe what a business has done. The operator describes what it can become. We spend more time understanding the founder, the leadership team, and the culture than most diligence processes allow for.
Why? Because most value creation after the close runs through people. If the operating team is great, the deal usually works even when the model is wrong. If the team is weak, the model rarely saves it.
We pressure-test the customer
We call customers. Many of them. Not just the references the company offers. We want to understand why people buy, why they stay, and what would have to be true for them to leave.
Customer behavior is the most honest predictor of future revenue. Spreadsheets lie. Customers do not.
We model the downside before the upside
Anyone can build a model that produces an attractive return. The exercise that matters is figuring out what breaks the deal. Recession scenarios. Loss of the top three customers. Key person departure. We want to know what the floor looks like before we get excited about the ceiling.
We earn conviction slowly
By the time we present a deal to capital partners, we have lived with it for months. We have walked the facilities, met the team, and worked through the operational plan with the founder. Our conviction is not borrowed from a banker's CIM. It is earned firsthand.
The bottom line
Great diligence is not about asking more questions. It is about asking better ones. The companies that survive that process tend to be the companies that compound for our investors.